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Supreme Court Upholds, with Limits, the SEC’s Authority to Seek Disgorgement

By Breon S. Peace, Alex Janghorbani, Robin M. Bergen & Matthew C. Solomon
June 25, 2020
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On June 22, 2020, the Supreme Court held in Liu v. SEC that the Securities and Exchange Commission (“SEC”) may seek, and courts have the power to grant, disgorgement as an equitable remedy for violations of the securities laws. However, the Court also placed potentially important limitations on disgorgement, holding that—to qualify as an equitable remedy and thus be allowable—disgorgement awards must accord with certain traditional equitable principles. While the Court left it to the lower courts to determine whether SEC disgorgement requests are in fact equitable on a case-by-case basis, it articulated guideposts calling into question the SEC’s ability to obtain disgorgement that (1) exceeds a wrongdoer’s net profits, (2) is not distributed back to victims, and (3) is awarded against multiple defendants on a joint-and-several basis. Although the Liu decision preserves the SEC’s ability to seek disgorgement—a central tenet of the SEC’s enforcement program—it imposes a number of line-drawing questions on lower courts to consider. Depending on how the case law develops, these issues may serve both to increase the SEC’s burden in making out disgorgement claims and to reduce the total dollar amounts of disgorgement awards the SEC is able to obtain, perhaps significantly.

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Photo of Breon S. Peace Breon S. Peace

Breon S. Peace’s practice focuses on white-collar defense, regulatory enforcement matters and complex civil litigation.

Read more about Breon S. PeaceEmail
Photo of Alex Janghorbani Alex Janghorbani

Alexander Janghorbani’s practice focuses on complex securities issues, litigation and enforcement, informed by nearly nine years of service with the U.S. Securities and Exchange Commission.

Read more about Alex JanghorbaniEmail
Photo of Robin M. Bergen Robin M. Bergen

Robin M. Bergen’s practice focuses on government and internal investigations, and regulatory enforcement and examination of broker-dealers and investment advisers.

Read more about Robin M. BergenEmail
Photo of Matthew C. Solomon Matthew C. Solomon

Matthew C. Solomon has significant experience in complex and high-stakes civil and criminal matters, having served for 15 years with the U.S. Department of Justice and the U.S. Securities and Exchange Commission—including most recently as the SEC’s Chief Litigation Counsel.

Read more about Matthew C. SolomonEmail
  • Posted in:
    Corporate & Commercial, Criminal
  • Blog:
    Cleary Enforcement Watch
  • Organization:
    Cleary Gottlieb Steen & Hamilton LLP
  • Article: View Original Source

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